Abstract: In a case currently pending before the U.S. Supreme Court the court has
been urged to overrule the longstanding per se illegality rule
presently applicable to minimum resale price maintenance, or RPM. Over
the past fifty years antitrust theorists and economists have advanced
several pro-competitive explanations for RPM. Additionally, scholars
have argued that non-price vertical restraints (such as territorial
exclusivity) and RPM have similar effects on price and quantity and
should therefore be treated similarly by law. Nearly thirty years ago,
the Supreme Court ruled that non-price vertical restraints should be
subject to a rule of reason, acknowledging their pro-competitive
potential. Since no explanation has been forwarded to justify treating
RPM differently, there seems to be good reason to rectify the
inconsistency and subject RPM to a rule of reason too. And indeed, the
Court has recently granted Certiorari, signaling at least a willingness
to reconsider its position. In the following I argue that legal
policymakers' current approach is economically justified. I show that
all pro-competitive explanations for RPM suffer from a common flaw, the
possibility of non-price competition, which challenges RPM's ability to
achieve any of the pro-competitive goals attributed to it. I then
proceed to show that non-price vertical restraints are capable of
achieving the pro-competitive goals which RPM is incapable of
achieving. This justifies both applying a per se illegality rule to RPM
and applying a different rule, namely a rule of reason, to other
vertical restraints.

David Balto reports on a recent decision in California. Reilly v. Media News challenges a series of
newspaper mergers in the Bay Area. Mr. Reilly, a consumer, argues the
mergers are anticompetitive and he argues the anticompetitive effects
are not just a matter of prices but the importance on diversity of
ownership and diversity of media views. Judge Illston decided Mr Reilly had standing. She relied on Judge Walker's decision in an earlier merger challenge brought by Mr. Reilly "Chief
Judge Walker [in Reilly 1] simply noted that the Newspaper reservation Act reflects a congressional concern with "encouragement
of ultiple sources of newspaper news, features and opinion," and "the
Sherman Act and Clayton Act should be read bearing in mind [these]
legislative purposes.Id. at 1195. There is no reason to think that Congress was only concerned with newspaper diversity in situations where the NPA is involved.

"This Court agrees with the analysis of standing made in Reilly I. The
NPA evidences that Congress values the existence of separate sources of
newspaper content in a community, and that loss of separate sources
injures consumers. The existence of the NPA thus strongly suggests that
loss of diversity of content is a "threatened loss or damage `of the
type the antitrust laws were designed to prevent and that flows from that which makes defendants' acts unlawful. "' Cargill, Inc. v. Monfort of Colorado, Inc., 479
U.S.104,113 (1986). This conclusion is consistent with the Supreme
Court's broad interpretation of the Clayton Act, which "does not
confine its protection to consumers, or to purchasers, or
to competitors, or to sellers.... The Act is comprehensive in its terms
and coverage, protecting all who are made victims of the forbidden
practices by whomever they may be perpetrated." Blue Shield v Mcready"and "A
refusal to compete with respect to the package of services offered to
customers, no less than a refusal to compete with respect to the price
term of an agreement, impairs the ability of the market to advance
social welfare by ensuring the provision of desired goods and services
to consumers at a price approximating the marginal cost of providing
them." FTC v. Indiana Federation of Dentists, 476 U. S. 447, 459 (1986); see also Glen Holly, 352 F.3d at 377 ("Antitrust
law addresses distribution restraints in order to protect consumers
from the higher prices or diminished choices that can sometimes result
from limiting intrabrand competition.") (citation omitted).

Professor Daniel Crane of Cardozo Law School (of recent fame on this blog for his excellent Antitrust Antifederalism article) is filing a law professors' amicus brief in Cascade v. PeaceHealth, a 9th Circuit case on bundled discounts. This is in response to the following (rather unusual) request by the 9th Cir. panel:

The court invites supplemental briefs by any amicus curiae addressing the following issue raised in this appeal: Whether a plaintiff who seeks to establish the predatory or anticompetitive conduct element of an attempted monopolization claim under § 2 of the Sherman Act by showing that the defendant offered bundled discounts to the defendant's customers must prove that the defendant's prices were below an appropriate measure of the defendant's costs. If so, what is the appropriate measure of costs and how should the trial court instruct the jury on the matter of costs? If not, what standard should the trial court instruct the jury to use to determine whether the bundled discounts are predatory or anticompetitive?

The Crane brief answers the first question yes. It argues in favor of a discount reallocation screen (the plaintiff must show that the competitive product was priced below cost after reallocation of discounts from the monopoly product) and advocates average variable cost as the appropriate measure of cost.

The brief will be on behalf of a group of law professors. It is due to be filed next Thursday (April 19). Anyone wishing to review a draft of the brief should email Dan.

Abstract: Antitrust has long played a major role in telecommunications policy,
demonstrated most dramatically by the equal access mandate imposed
during the breakup of AT&T. In this Article we explore the extent
to which antitrust can continue to serve as a source of access mandates
following the Supreme Court's 2004 Trinko decision. Although Trinko
sharply criticized access remedies and antitrust courts' ability to
enforce them, it is not yet clear whether future courts will interpret
the opinion as barring all antitrust access claims. Even more
importantly, the opinion contains language hinting at possible bases
for differentiating among different types of access, in contrast to
previous analyses, which have generally grouped all of the forms of
access into a single category. We build upon this language to offer an
analytical framework, based on a branch of mathematics known as graph
theory, that captures the manner in which different components of
network can interact with one another as part of a complex system. Our
analysis also offers a basis for classifying the different types of
access into five categories: retail, wholesale, interconnection,
platform, and unbundled. We then employ this framework to analyze a
range of policy and doctrinal issues, including the current debate over
network neutrality.

Korah makes a number of interesting points. One insight in particular on the current state of Article 82 stands out. Korah writes, "The old views on Article 82 are still accepted by the courts, although the views are now controversial. The Commission is trying focus on avoiding consumer harm, and analyzing the direct or indirect effects on consumers of conduct alleged to be abusive. There is a huge dispute between those influenced by the German school of Ordo Liberals, interested in competition as an institution and the protection of competitors, on the one hand, and those influenced by developments in the USA and concern for efficiency."

The International Competition Network (ICN) has, in my estimation, been the most important and effective international antitrust institution for norm creation and implementation since its creation in 2001. Two ICN events are coming up in the near term that are worth noting.

As posted on the ICN website, "The Irish Competition Authority and the UK Office of Fair Trading will be hosting an ICN Mergers Workshop on Substantive Issues in Merger Review
to be held on April 12th-13th, 2007, in Dublin, Ireland. The Workshop
is aimed at case handlers of competition authorities and it is intended
to promote the outputs delivered by the ICN Merger Investigation and
Analysis Subgroup over the last two years."

The ICN annual meeting conference website is now up, here. The meeting will be in Moscow. As documents become final, they will be posted on the conference website. The conference agenda is exciting and is available here. I have been involved with the inputs of a number of subgroups and think that this conference and materials will be excellent. As noted earlier, due to the upcoming birth of our second child, my wife has forbidden my travel in May and June so I will not attend the conference. We will try to get someone to report from the conference for the blog.